51 Pages Posted: 20 Dec 2015 Last revised: 7 Aug 2018
Date Written: August 3, 2018
We document that investors derive nonpecuniary utility from investing in dual-objective venture/growth equity funds, thus sacrificing financial returns. In reduced form, impact funds earn 4.7% lower IRRs compared to traditional VC funds. Likewise, random utility/willingness-to-pay (WTP) models of investment choice indicate investors accept 3.4% lower IRRs for impact funds. We rule out alternative interpretations of risk, liquidity, and naiveté. Development organizations, banks, public pensions, Europeans, and UNPRI signatories have high WTP; endowments and private pensions have none. Mission-oriented objectives and local political pressure increase WTP; legal restrictions (e.g., ERISA) decrease WTP.
Keywords: Impact investing; venture capital; private equity; socially responsible investment; United Nations Principles of Responsible Investment (UNPRI); sustainable investing; public pension funds; willingness to pay; random utility discrete choice models
JEL Classification: G11, G21, G22, G23, G24, G28, H41, M14
Suggested Citation: Suggested Citation